Question

Circle-Square, Ltd., is in the process of liquidating and going out of business. The firm's balance sheet shows $22,990 in cash, accounts receivable of $112,900, inventory totaling $62,200, plant and equipment of $255,000, and total liabilities of $304,200. It is estimated that the inventory can be disposed of in a liquidation sale for 80 percent of its cost, all but 10 percent of the accounts receivable can be collected, and plant and equipment can be sold for $182,580 Required: Calculate the amount of cash that would be available to the owners if the accounts receivable are collected, the other assets are sold as described, and the liabilities are paid off in full. (Deductible amounts should be indicated by a minus sign. uipment Liabilities Stockholders S 22,990112,90062,200 255,000304,200+ Data given Collection of accounts receivable Inventory liquidation Sale of plant & equipment Payment of liabilities Balance S 22,990112,900$62,200255,000304,200

Answer 1

Cirlce-Square Ltd

Calculation of the amount of cash that would be available to the owners if the accounts receivable are collected, the other assets are sold as described, and the liabilities are paid in full:

	Cash	+	Accounts Receivable	+	Inventory	+	Plant & Equipment	=	Liabilities	+	Stockholders' Equity
Data Given	$22,990	+	$112,900	+	$62,200	+	$255,000	=	$304,200	+	$148,890
Collection of accounts receivable	$101,610	+	($112,900)	+		+		=		+	($11,290)
Inventory Liquidation	$49,760	+		+	($62,200)	+		=		+	($12,440)
Sale of plant & equipment	$182,580	+		+		+	($255,000)	=		+	($72,420)
Payment of liabilities	($304,200)	+		+		+		=	($304,200)	+
Balance	$52,740	+	0	+	0	+	0	=	0	+	$52,740

Collection from accounts receivable = 90% x 112,900 = $101,610

Inventory liquidation collection = 80% x 62,200 = $49,760

Sale of plant & equipment = $182,580

Liabilities are paid in full at $304,200.